Do Share Repurchases Facilitate Movement Towards Target Capital Structure? International Evidence

53 Pages Posted: 15 Jun 2021 Last revised: 19 Jun 2021

See all articles by Zigan Wang

Zigan Wang

The University of Hong Kong - School of Economics and Finance; Columbia University

Qie Ellie Yin

Hong Kong Baptist University

Luping Yu

The University of Hong Kong - Faculty of Business and Economics

Date Written: June 2021

Abstract

We use a new international setting to test and strengthen the identification of “target leverage hypothesis” in the payout policy literature. We conduct a quasi-natural experiment induced by staggered share repurchase legalization in 17 economies and analyze its influences on leverage dynamics. Under-leveraged firms before legalization are more likely to buy back shares immediately after the law change, controlling for other repurchasing motives. Post-legalization repurchases also facilitate firms’ movement towards target leverage, especially for under-leveraged firms. This facilitating effect is stronger under less repurchasing restriction, higher dividend tax penalty, and lower financial constraint.

Keywords: Share repurchases, capital structure, target leverage

JEL Classification: G32, G35, G38

Suggested Citation

Wang, Zigan and Yin, Qie Ellie and Yu, Luping, Do Share Repurchases Facilitate Movement Towards Target Capital Structure? International Evidence (June 2021). Available at SSRN: https://ssrn.com/abstract=3866124 or http://dx.doi.org/10.2139/ssrn.3866124

Zigan Wang

The University of Hong Kong - School of Economics and Finance ( email )

8th Floor Kennedy Town Centre
23 Belcher's Street
Kennedy Town
Hong Kong

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

Qie Ellie Yin (Contact Author)

Hong Kong Baptist University ( email )

WLB 807, 34 Renfrew Road
Hong Kong Baptist University
Kowloon Tong, 0000
Hong Kong
(852)34115792 (Phone)

Luping Yu

The University of Hong Kong - Faculty of Business and Economics ( email )

Hong Kong

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